The Supreme Court (opinion attached below) has affirmed the Ninth Circuit’s decision in Kawashima, ruling that resident aliens who pled guilty to making (or assisting in making) a false tax return in violation of Code section 7206 had committed “aggravated felonies” that made them deportable. The vote was 6-3, with Justice Thomas writing the opinion and Justices Ginsburg, Breyer, and Kagan dissenting.

As we have previously reported, the Kawashima case involves the interplay between two subsections of the deportation statute’s definition of aggravated felonies, 8 U.S.C. § 1101(a)(43). Subsection (M)(i) broadly includes offenses “involv[ing] fraud or deceit”; subsection (M)(ii) adds violations of Code section 7201 (tax evasion). The Kawashimas argued that subsection (ii) is addressed to tax offenses and therefore the statute does not include the less serious tax offenses covered by section 7206. The government argued that section 7206 offenses involve “fraud or deceit,” and therefore they are covered by subsection (ii). (Seehere for a more detailed analysis of the Supreme Court briefing).

The majority agreed with the government, applying a literal and technical approach to the statutory language that did not afford much weight to the historical understanding of the criminal tax provisions. The Court first found that the conduct of willfully submitting a false tax return inherently involves ‘deceit” and therefore is encompassed within subsection (i). The Court then rejected the Kawashimas’ primary argument that this conclusion was untenable because it would make subsection (ii) entirely superfluous (since tax evasion also involves deceit). To support that conclusion, the Court accepted the government’s technical argument that subsection (ii) was not superfluous because there was theoretically a situation where tax evasion does not involve “deceit” – namely, when a taxpayer files a truthful tax return but evades payment by moving his assets beyond the reach of the IRS. Thus, the Court ruled that, “[a]lthough the Government concedes that evasion-of-payment cases will almost invariably involve some affirmative acts of fraud or deceit, it is still true that the elements of tax evasion pursuant to §7201 do not necessarily involve fraud or deceit.”

The dissenters characterized the majority’s construction of the statute as “dubious,” criticizing in particular its contortions to avoid the conclusion that its construction “effectively renders Clause (ii) superfluous.” According to the dissent, the government’s proposed instances of tax evasion not involving “deceit” are not just “rare,” they are “imaginary.” Given that the Court has previously “declined to interpret legislation in a way that ‘would in practical effect render [a provision] entirely superfluous in all but the most unusual circumstances,” the dissent argued that the majority’s reading is unsustainable. Pointing to an amicus brief filed by former IRS Commissioner Johnnie Walters, the dissent also stated that the Court’s decision would have adverse consequences for the efficient handling of tax prosecutions. In particular, it will discourage aliens from pleading guilty to the lesser section 7206 offense instead of going to trial on a tax evasion charge, because of the risk of deportation.

[Note: Miller and Chevalier represents amicus National Trust for Historic Preservation in this case]

The government has filed its reply brief in the Historic Boardwalk case in the Third Circuit. (See our prior report and the other briefs here.) The brief mostly goes over the same ground as the opening brief in seeking to deny section 47 historic rehabilitation credits to the private investor partner in the partnership that rehabilitated East Hall on the Atlantic City boardwalk. It attempts to side-step the Ninth Circuit’s economic substance analysis in Sacks by arguing that the Third Circuit did not explicitly endorse Sacks when it distinguished that case in other decisions. The brief urges the court instead to follow the Fourth Circuit’s Virginia Historic decision (see our coverage here), even though that case involved the disguised sale provisions, arguing that the case “touches on the same risk-reward analysis that lies at the heart of the bona-fide partner determination.” The government also argues that Congress’s intent in passing section 47 would not be thwarted because the private investor allegedly “made no investment in the Hall.”

Indeed, the reply brief includes a special “postscript” “in response to the amicus brief” filed for the National Trust for Historic Preservation that seeks to deflect the charge that the government’s position would undermine Congress’s purpose to facilitate historic rehabilitation. Not so, says the government. It is only “the prohibited sale of federal tax credits — not the rehabilitation tax credit provision itself — that is under attack here.”

Oral argument in the case has been tentatively scheduled for April 20.

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Authors

Steve Dixon is a Member in the Tax Department at Miller & Chevalier. He specializes in controversy and litigation, representing taxpayers in the Tax Court and Federal courts.

Laura Ferguson is a Member of the Supreme Court and Appellate Litigation Group at Miller & Chevalier and has successfully briefed and argued six cases at the U.S. Courts of Appeals in the past two years. Ms. Ferguson also has extensive experience litigating complex, high-stakes tax cases at the Tax Court and federal district courts.

Alan Horowitz is the former Tax Assistant to the Solicitor General at the Department of Justice, where he briefed and argued numerous tax cases in the Supreme Court. He is currently the head of the Supreme Court and Appellate Litigation Group at Miller & Chevalier.